Sumitomo Realty & Development : English Integrated Report 2023 ( 14.7MB )

Integrated Report 2023

Integrity and Innovation

Inheriting Sumitomo's Business Philosophy

with a history of 430 years

The Sumitomo Realty Group is a comprehensive real estate enterprise of the Sumitomo Group with a history of over 430 years. Inheriting Sumitomo's business philosophy, with its origins in the Monjuin Shiigaki (Founder's Precepts), a document written by the founder of the House of Sumitomo, Masatomo (Monjuin), and given to its family members to offer guidance on how a merchant should conduct business, we have developed our business by placing top priority on integrity and pursuing creation of new value with innovative and challenging spirit.

Reflecting this business philosophy, we have set forth our fundamental mission as to "Create even better social assets for the next generation" with our corporate slogan, "Integrity and Innovation."

Corporate Philosophy

• Placing prime importance on integrity and sound management in the conduct of its business
• Under no circumstances, shall it pursue easy gains or act imprudently
• Benefit self and benefit others, private and public interests are one and the same

Inheriting Sumitomo's Business Philosophy with a history of 430 years

The business philosophy inherited by the Sumitomo Group strongly demands that we,

• As people, act in good faith toward all things,
• Not chase easy gains, refine our humanity and develop a well-rounded character, and
• Seek "harmony with the common good" that generates not only our own benefits but also those for society in an integrated manner.

Slogan

Integrity and

Innovation

Placing top priority on "integrity," we go beyond simple development with innovative and challenging spirit, relentlessly pursuing value creation without pursuing easy gains. This corporate stance as a developer is expressed in our slogan, "Integrity and Innovation."

Fundamental Mission

Create even better

social assets for

the next generation

Through our businesses closely associated with people's daily lives, such as office building leasing, condominium sales, custom home construction and remodeling, it is our mission to create assets that live on to the next generation and we strive for sustainable urban development that is "Disaster Resistant," "Environmentally Friendly," "Together with the Community" and "People Friendly."

Monjuin Shiigaki (Founder's Precepts) owned by Sumitomo Historical Archives

Integrity and Innovation

Code of Conduct

In order to fulfill our fundamental mission under the slogan "Integrity and Innovation," we established the Code of Conduct as guidelines to govern all our officers and employees.

1.	Open Culture	Opportunity	5.	Rejection of Antisocial Forces
2.	Higher Goals	Innovation	6.	Trust with Our Stakeholders
3.	New Approaches	Pioneering	7.	Environmental Protection
4.	Compliance			Protecting the global environment through
	Business activities in compliance with laws and		efforts such as resource saving, energy saving,
	regulations, corporate rules, social norms, and		resource recycling, and CO2 reduction
	ethics

1	Integrated Report 2023	Sumitomo Realty & Development Co., Ltd.	2

Contents
05	Business Structure
07	A Message from the Management Pick Up

11	The Sumitomo Realty Group's
Business Strategy
	Basic Management Strategy and
	Medium- to Long-term Outlook for	11
	"Sustainable Growth" Pick Up
	The Ninth Management Plan	19
	Decarbonization Targets and Initiatives	23
	Unique Human Resource Investment Strategy	25
	(Utilization of Human Capital) Pick Up
27	The Sumitomo Realty Group's
Value Creation
	History of Value Creation and Our Strengths	29
	Solving Social Issues through Redevelopment	31
	Examples: Osaki Area, Roppongi Area	33
	Enhancement of Corporate Value through Four	35
	Mainstay Businesses
	Example: Shinchiku Sokkurisan Remodeling	37
	Value Creation Process	39
	Taking on the Challenges of Creating	41
	New Value Pick Up
	Shinjuku Sumitomo Building and "Sankaku Hiroba"	41
	Ariake Garden	42
	Haneda Airport Garden	42

Actively Investing in "Mumbai, India," a Growing Market 43

45 Business Review

		Financial Results for Fiscal 2022 and Progress of	45
		the Ninth Management Plan
		Overview of Each Segment	46
			Leasing	49
			Sales	55
		Business
		Construction	57
		Segments
		Brokerage	61
			Group Companies	62
63		The Sumitomo Realty Group's
	ESG Management
		Promotion of ESG and Contributions to SDGs	63
		Environment		65
		Society		69
		Governance		73
		Consolidated Financial and Non-
85 financial Data / Company Information
		Key Non-financial Data	85
		Eleven-year Key Financial Summary	87
		Corporate Data / Investor Information	89
		History		90

Pick Up

Message from the Management	Unique Human Resource Investment
Our corporate value creation through the	Strategy (Utilization of Human Capital)
Our unique human resource investment
sustainability management that inherits
Sumitomo's business philosophy, and our	strategy, which supports the rich diversity of
expansion strategy looking ahead to the	our human resources, motivates individuals to
future of leasing business, the foundation of	achieve further growth and assists with career
our sustainable growth	formation, thereby underpinning the
P.07	sustainable growth of the Group
	P.25

Basic Management Strategy and Medium- to	Taking on the Challenges of Creating
Long-term Outlook for "Sustainable Growth"	New Value
Our basic management strategy and		Continuing to take on the challenges of
accompanying medium- to long-term outlook,	creating new value through urban
including business outlook based on the recent	development based on the sources of our
changes in social and economic conditions with	Group's value creation
normalization of economic activity, our profit
distribution policy, investment for growth,	P.11	P.41
governance, and capital efficiency

Editorial Policy

Caution Concerning Forward-looking Statements

This report is designed to deepen the understanding among our stakeholders on the sustainability management and business activities

Forward-looking statements including business forecasts contained in this integrated report represent management's assumptions and

of the Sumitomo Realty Group, which inherits the Sumitomo's business philosophy with a history of 430 years and aims to create

beliefs based on the information currently available to the Company and contain risks and uncertainties. Furthermore, they do not

economic and social value for sustainable growth together with the city. It summarizes financial and non-financial information. For

represent the Company's guarantee of future performance. Therefore, stakeholders are warned not to solely rely on these statements in

details of each content item, please also refer to the following related materials.

making investment decisions. Actual results may differ from these business forecasts due to a variety of important factors.

This report was compiled based on the disclosure framework of the International Integrated Reporting Council (IIRC).

Important factors that could affect actual results include, but are not limited to, the environment surrounding the Group's business

areas, such as macroeconomic conditions, the real estate market, and interest rate trends.

Related Materials

Period Covered: April 1, 2022 to March 31, 2023

For details of the contents of this report, please refer to the following related materials and pages on our website.

(Some descriptions on activities and outlook in this report refer to those prior to or after this period.)

Definition of Term: "FY2022,""FY '22,""fiscal 2022" or "fiscal year under review" refer to the fiscal year ended March 31, 2023.

Investor Relations https://www.sumitomo-rd.co.jp/english/ir/

Sustainability/ESG https://www.sumitomo-rd.co.jp/english/sustainability/

Other fiscal years are referred to in a corresponding manner unless otherwise indicated.

Scope of Report: Sumitomo Realty & Development Co., Ltd. and its Group companies

Published: November 2023 (Japanese edition)

Cover Photo: Sumitomo Fudosan Tokyo Mita Garden Tower (Completion in February 2023)

Annual Securities

Medium- to Long-

IR News

Corporate

Sustainability News

ESG Reports

Report (in Japanese)

term Management

Governance

Strategies

Report

3

Integrated Report 2023

Sumitomo Realty & Development Co., Ltd.

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Business Structure

Four Mainstay Businesses Centered on Office Building Leasing

Sumitomo Realty Group

Property Condominium management management

Sumitomo Fudosan

Tatemono Service Co., Ltd.

Four Highly-profitable Mainstay Segments

The Sumitomo Realty Group comprises the four mainstay segments: Leasing, the core earnings driver that generates nearly 70% of the operating income overall, owning more than 230 office buildings in central Tokyo; Sales, generating stable profits every year as one of the industry's top suppliers of condominium units; Construction, providing Shinchiku Sokkurisan, the industry's No.1 full-remodeling business, and custom home construction; and Brokerage, having one of the highest number of transactions in the industry, primarily for existing homes.

Each business has been steadily increasing their performance with a high level of profitability, and contributing to improving the corporate value of the Group.

A Message from the Management The

Sales

• Condominium Sales

Results for the fiscal 2022

	(Billion yen)
Revenue from	939.9
operations
Operating income	241.2
Ordinary profit	236.6
Profit	161.9

Breakdown of revenue

from operations

	1%
	8%
23%	939.9	45%
	Billion yen
	23%

	Breakdown of
operating income
	0%
	8%
8%
21%	241.2		Leasing
Billion yen	63%	Sales
		Construction
			Brokerage
			Others

Sumitomo Realty Group's Business Strategy

The Sumitomo Value

Note: Percentage is calculated from figures before elimination and/or corporate for the fiscal year ended March 31, 2023.

Realty Creation

Sumitomo Realty &

Development Co., Ltd.

Construction

Revenue from operations			(Billion yen)
		FY2022	YoY FY2023 (F) YoY

Leasing	425.3	+ 0.2	445.0	+ 19.6
Sales	222.0	(11.7)	225.0	+ 2.9
Construction	213.5	+ 9.2	220.0	+ 6.4
Brokerage	75.1	+ 1.6	77.0	+ 1.8

Operating income			(Billion yen)
		FY2022	YoY FY2023 (F) YoY

Leasing	165.6	+ 3.0	172.0	+ 6.3
Sales	53.9	+ 3.4	54.0	+ 0.0
Construction	21.4	+ 2.8	23.0	+ 1.5
Brokerage	20.0	+ 2.0	22.0	+ 1.9

Group's

Business Review

• Shinchiku Sokkurisan Remodeling

• Custom Homes

Sumitomo Fudosan Syscon Co., Ltd.

Leasing

• Office Buildings • Rental Apartments • Hotels

• Multipurpose Halls • Retail Facilities	Brokerage
Sumitomo Fudosan Villa Fontaine Co., Ltd.	• Real Estate Brokerage
Sumitomo Fudosan Bellesalle Co., Ltd.	Sumitomo Real Estate
Sumitomo Fudosan Retail Management Co., Ltd.
Sales Co., Ltd.
Others
• Fitness Sumitomo Fudosan Esforta Co., Ltd.	• Restaurant/Catering Izumi Restaurant Co., Ltd.
• General Insurance and Life Insurance Agency	Izumi Insurance Service Co., Ltd.

etc.

5 Integrated Report 2023

Operating income by segment

Leasing Sales Construction Brokerage

(Billion yen)

180
160
140
120
100
80
60
40
20
0	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
1999
(Years ended/ending March 31)																						(Forecast)

Sumitomo Realty & Development Co., Ltd.

6

ESG management	The Sumitomo Realty Group's
financial Data /	Consolidated
Company Information	Financial and Non-

Message from the Management

Striving for "Sustainable

Growth and Development"

Together with the City

Creating New Value That

Will Be Needed for Future

Generations

Kojun Nishima

President

		Corporate philosophy that inherits "Sumitomo's Business Philosophy" with a history of 430 years
Corporate
	The Company is a comprehensive real estate enterprise of the Sumitomo Group, which succeeded the Sumitomo
Philosophy		Honsha Ltd. and inherits "Sumitomo's Business Philosophy" which has a history of 430 years. The Sumitomo Group
P.01
		is one of the longest-lasting corporate groups in the world, and its business philosophy - "Placing prime importance
		on integrity," "Under no circumstances, shall it pursue easy gains," "Benefit self and benefit others, private and
		public interests are one and the same," etc. - has been handed down as a guiding principle throughout its history.
		In light of the wisdom of its predecessors, the Sumitomo Realty Group has developed its business based on a
		philosophy of placing top priority on integrity, not pursuing easy gains, and creating not only economic value through
		the pursuit of self-interest, but also lasting social value that will be needed for future generations.
		Our corporate slogan "Integrity and Innovation" expresses such corporate stance. With this corporate slogan, we
		have set our code of conduct to create new values by placing top priority on relationships of trust with stakeholders,
		always setting higher goals, and pioneering with new approaches. Under this slogan, we have set forth our
		fundamental mission as to "Create even better social assets for the next generation," and our basic management
		policy aims to address various social issues including environmental ones through each business while maximizing
		corporate value.
		The real estate business has great social significance with a mission of enriching people's daily lives by forming
		bases where people work, live and interact, as well as providing related services. As such, we have identified "Disaster
		Resistant," "Environmentally Friendly," "Together with the Community" and "People Friendly" as our four material
		issues and have been practicing "Sustainability Management" offering sustainable social assets for future
		generations.

Our Material Issues (Materiality)

	Disaster
Disaster Resistant	prevention	People Friendly
Environment	Even better	People
social assets
Environmentally						Together with
Friendly						the Community

Community

Creating new value and achieving sustainable growth together with the city

We have established a sustainable and stable earnings base by steadily developing the real estate leasing business primarily involving office buildings in central Tokyo. We have developed numerous office buildings through redevelopment under the Urban Renewal Act, etc. over roughly half a century since the early 1970s. By keeping the ownership of these buildings, rather than selling them off, we have accumulated stable revenues. With gross floor area of over 1.81 million tsubo (one tsubo is roughly 3.3 m2) as of March 31, 2023, the leasing business has been a solid business platform that accounts for nearly 70% of our overall operating income of over ¥240 billion.

In order to secure a stable supply of land in central Tokyo, where large parcels of land are rare, we, as a "Land Maker," have been engaged in urban development including redevelopment together with numerous landowners.

Through our redevelopment business to date, in addition to creating an earnings base, we have contributed to solving various issues of the community. By redeveloping the remaining densely built-up areas with low-rise wooden houses in various areas of central Tokyo, which pose high disaster risks, we have realized effective use of land, improvement of disaster preparedness and revitalization of the community. By upgrading urban function through redevelopment, the Company contributes to enhancing the value of not only the redevelopment area but also international metropolis Tokyo overall.

Our strength is the capability of "Land Innovation," or the capability of development, which we have cultivated over the years as one of Japan's leading comprehensive developers. By taking advantage of this strength, we will continue to promote sustainable urban development that generates both economic and social value, as well as to achieve sustainable growth and maximize corporate value.

Basic Management Strategy and Medium- to Long-term Outlook for "Sustainable Growth"

In May 2022, we formulated and announced the Ninth Management Plan when uncertainty was still strong over such issues as the COVID-19 pandemic and the situation in Ukraine. In May 2023, although the financial environment and other conditions remain unpredictable, as COVID-19 pandemic has finally wound down and economic activity is expected to normalize, we restated and released our "Basic Management Strategy and Medium- to Long-term Outlook for Sustainable Growth" with the aim of further increasing corporate values, taking into consideration recent changes in social and economic conditions. It includes earnings targets of aiming to surpass 300 billion yen in ordinary profit in the next medium-term management plan earlier than we initially expected, as well as our profit distribution policy, investments for growth.

Under these basic policies and strategies, we will steadily advance initiatives aimed at sustainable enhancement of corporate value.

The Sumitomo

Realty Group's

Value Creation

P.27

Basic Management Strategy and Medium- to Long- term Outlook for "Sustainable Growth"

P.11

A Message from the ManagementThe Sumitomo Realty Group's

Business Strategy

The Sumitomo Realty Group's

Value Creation

Business Review

ESG management	The Sumitomo Realty Group's
financial Data /	Consolidated
Company Information	Financial and Non-

7 Integrated Report 2023

Sumitomo Realty & Development Co., Ltd.

8

* For details on our business expansion in Mumbai, India, please refer to pages 43-44.

Additional

700,000

A Message from the Management

Basic	Earning Targets
Management	We aim to surpass ¥300.0 billion in ordinary profit in the next medium-term management
Strategy and
Medium- to	plan, earlier than the medium- to long-term outlook forecast

Investment for Growth

Steady progress in investment in leasing office assets with gross floor area of over 700,000 tsubo in central Tokyo, mainly comprising redevelopment

A Message from the

Long-term

At the time of the announcement of the Ninth Management Plan in May 2022, when the business environment

Outlook for

outlook was uncertain due to the COVID-19 pandemic and the situation in the Ukraine, the Company has set its

"Sustainable

Growth"

long-term vision to achieve ¥300.0 billion in ordinary profit by fiscal 2030 at the latest through the contribution of

P.11

earnings from operations of new buildings to be completed. However, the outlook for each business segment

including the hotel and multipurpose hall businesses, which were affected by the COVID-19 pandemic, has improved

compared to a year ago, and surpassing ¥300 billion in ordinary profit is now expected to be achievable during the

next medium-term management plan (2026-2028), earlier than initially expected.

Our office building leasing

Surpassing

business in Tokyo has proven to

¥300 billion

(Billion yen)

in next plan

be resilient even in the face of the

300

COVID-19 pandemic, and we will

continue to position it as our solid

250

COVID-19

foundation. In addition to office

200

building leasing business, we will

also expand other businesses such

150

Global

as Shinchiku Sokkurisan

Financial

Crisis

remodeling, through initiatives of

100

Ordinary

high social significance including

Profit

contribution to decarbonization,

50

Profit increase for 23 years out of 26 years

The Company has adopted a policy of continuing to invest in leasing office assets in central Tokyo, which has underpinned sustainable growth to date, and has been promoting development plans with gross floor area of over 700,000 tsubo (approx. 2,300,000 m2) expected to complete in and after the "Ninth Management Plan." The Company aims to achieve profitability from these projects focusing on large-scale redevelopment over the next three medium-term management plans, and additional investments will be approximately ¥2 trillion (of which ¥700.0 billion is for the three years of the Ninth Management Plan). We will continue to steadily promote redevelopment projects underway in Yaesu, Roppongi, Tsukiji, and other locations in central Tokyo, and we will strive to further expand our earnings base and increase corporate value by completing and putting these projects into operation.

Operating income from office building leasing business and gross floor

area for leasing

(Billion yen)								tsubo	(Thousands of tsubo)
220									and more	2,200
200								¥172.0 billion	2,000
180					Gross floor	(March 2024 forecast)	1,800
160								1,600
					area for
140					leasing (owned)				1,400
				(right scale)
120											1,200
100	¥33.0 billion								1,000
80	(March 1997)				Operating		800
60								600
						income from
40								leasing		400
						business
20								200
0	'97	'00	'03	'06	'09	'12	'15	'18	'21	'24	0
	(Years ended/ending March 31)				(F)

ManagementThe Sumitomo Realty Group's Business Strategy

The

aiming to "surpass ¥300.0 billion

0

in ordinary profit" with the

'97

'00

'03

'06

'09

'12

'15

'18

'21

'24

'27

'30

comprehensive strengths of the

(Years ended/ending March 31)

(F)

Group as a whole.

1st Plan

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

Profit Distribution

Policy to return the fruits of sustainable growth to employees first, implementing a total of 7% wage increase in fiscal 2022

We believe that employees are the source of increasing corporate value, and the policy is to first return the fruits of sustainable growth to the Group's highly diverse workforce centered on career hires.

In fiscal 2022, in addition to a salary increase based on our unique compensation system that evaluates solely on each employees' ability (job responsibilities) and performance, a special allowance of ¥100,000 for daily living support was paid uniformly to all Group employees at the end of the year in consideration of the rapid rise in prices especially for utilities, and together with an expansion of the fiscal year-endlump-sum payment in conjunction with renewing record profit, a total of 7% increase in wages was implemented.

Double the dividend within 7 years to ¥100 per share, and continue sustainable dividend increase in line with profit growth

The Company's basic policy of profit distribution is to ensure prioritization of investment in leasing office assets in order to enhance the long-term earnings base and to strive for "sustainable dividend increase" in line with profit growth. Based on this idea, we initially set forth the continuation of the "annual dividend increase of ¥5 per share" in the Ninth Management Plan. However, in November 2022, we increased the pace of "sustainable dividend increase in line with profit growth" from ¥5 to ¥7 per share per year, based on the recognition that, in addition

to steady progress in business	Sustainable dividend increase in line with profit growth
performance, the future outlook
for business performance has	Profit		March			Within	Dividends
been brighter with the		2023	Double	7 years
			¥100
(Billion yen)		¥52	(Yen)
normalization in the economic	350						dividend		100
activities, considering the
300								90
coexistence with COVID-19.
Going forward, we will	250								75
continue the "annual dividend	200			59				60
increase of ¥7 per share" and			52
			Continue to
		Dividends	45
raise it to "¥100 per share per	150			increase	45
Profit	30
year" within seven years,	100			dividend by	30
				¥7 per year
doubling the current ¥52.		20

50

6

Dividend increased for

15

10 consecutive terms

0

'03

'06

'09

'12

'15

'18

'21

'24

'27

'30

'33

0

(Years ended/ending March 31)

Actively Investing in Mumbai, India's Largest Economic City - Aiming to Establish a Major Base Second to Tokyo

In addition to expanding the earnings base centered on the leasing business in central Tokyo, we started our overseas expansion in Mumbai, the largest economic city in India, with our "Tokyo office building leasing business" model of acquiring the development site independently, developing, leasing, managing and owning buildings by ourselves for the long term. After acquiring one of the largest office building sites in BKC, a new city center of Mumbai, in July 2019, we acquired an additional site of the same scale in November 2022, and are advancing the office building development plans with a total gross floor area of approximately 260,000 m2 and an investment scale of nearly ¥200.0 billion for the two properties combined. In addition, in October 2023, we independently acquired a development site of approximately 80,000 m2 (about 24,000 tsubo *1 tsubo ≈ 3.3 m2) in Worli, a new city center in the heart of Mumbai, and we will advance a "super high-risemixed-use urban development project," which will be the largest urban redevelopment by a Japanese company in India with a total project cost of over ¥500.0 billion and gross floor area of over one million m2, aiming for the full opening of the facilities in the 2030s.

Starting with this mixed development project, we are looking ahead to expanding into other businesses such as hotels, retail facilities and residential development in addition to our long-term office leasing business. We will continue to further expand our business base in India, bringing together the expertise in redevelopment and various businesses that we have cultivated so far as a comprehensive real estate company, to build a major base second to Tokyo.

BKC

Worli

We will aim to surpass ¥300.0 billion in ordinary profit in the next medium-term management plan and sustainable growth beyond that, with domestic businesses centered on office building leasing in Tokyo, which has maintained stable growth even in the midst of the COVID-19 pandemic. At the same time, we will expand our business base in India, which is experiencing remarkable development, by demonstrating our distinctive strengths unique to our company, and aim to enhance our long-term and sustainable growth. We will strive for business expansion in India, which will solidify our growth potential and realize further enhancement of corporate value with the collective efforts of the Sumitomo Realty Group.

Actively

Investing in

"Mumbai, India,"

1. Growing Market P.43

Sumitomo Realty Group's

Value Creation

Business Review

ESG management	The Sumitomo Realty Group's
financial Data /	Consolidated
Company Information	Financial and Non-

9

Integrated Report 2023

Sumitomo Realty & Development Co., Ltd.

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(Announced on May 11, 2023)

The Sumitomo Realty Group's Business Strategy

Basic Management Strategy and Medium- to Long-term Outlook for "Sustainable Growth"

The Basic Management Strategy and Medium- to Long-term Outlook for "Sustainable Growth" (full text) is as follows.

Earnings Targets

Aiming to surpass ¥300.0 billion in ordinary profit in the next medium-term management plan

In our mainstay real estate leasing and sales businesses, the process takes a minimum of two to three years from acquisition of land to completion of buildings and making a profit, and many large-scale development projects such as redevelopment projects require five years or more. We create three-yearmedium-term management plans in addition to single fiscal-year plans as it may undermine the most important perspective of the real estate business, which is to maximize revenues by optimizing the value of the land we acquire. With top priority placed on achieving objectives of the medium-term management plans we have formulated every three years, we have increased our corporate value as a result of the steady implementation of the plans. We have executed eight management plans, and have achieved increases in ordinary profit in 23 fiscal years, excluding the three fiscal years under the global financial crisis and the COVID-19 pandemic.

In the fiscal year ended March 31, 2023, the first year of the Ninth Management Plan, we achieved record ordinary profit for the second consecutive year and record profit for the tenth consecutive year, making a good start toward achieving the goals for the cumulative three-year period of the medium-term management plan.

For the fiscal year ending March 31, 2024, we aim to renew record-high profits with expecting higher profits in all business segments of the mainstay office building leasing (Leasing segment), condominium sales (Sales segment), housing (Construction segment) and Brokerage segment.

At the time of the announcement of the Ninth Management Plan in May 2022, when the business environment outlook was uncertain due to the COVID-19 pandemic and the situation in the Ukraine, the Company has set its long-term vision to achieve ¥300.0 billion in ordinary profit by fiscal 2030 at the latest through the contribution of earnings from operations of new buildings to be completed. However, the outlook for each business segment including the hotel and multipurpose hall businesses, which were affected by the COVID-19 pandemic, has improved compared to a year ago, and surpassing ¥300 billion in ordinary profit is now expected to be achievable during the next medium-term management plan (2026-2028), earlier than initially expected.

				Surpassing
(Billion yen)	¥300 billion
in next plan
300
			Achieve record ordinary profit for the third consecutive year in March 2024

250

(Billion yen)

'22

'23

'24 (F)

Revenue from Operations

939.4

939.9

970.0

COVID-19

Operating Income

233.8

241.2

255.0

200

Ordinary Profit

225.1

236.6

250.0

150

Global

Financial

Crisis

100

Ordinary

Profit

50

Profit increase for 23 years out of 26 years

0

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

'22

'23

'24

'25

'26

'27

'28

'29

'30

'31

(Years ended/ending March 31)

(F)

1st Plan

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

11 Integrated Report 2023

Growth strategy by segment

Our office building leasing business in Tokyo has proven to be resilient even in the face of the COVID-19 pandemic, and we will continue to position it as our solid foundation. In addition to office building leasing business, we will also expand other businesses such as Shinchiku Sokkurisan remodeling, through initiatives of high social significance including contribution to decarbonization, aiming to "surpass ¥300.0 billion in ordinary profit" with the comprehensive strengths of the Group as a whole.

Leasing

For office buildings, the trend toward increasing floor space is becoming apparent against the backdrop of tenants' staff returning to office and increased hiring as economic activity normalizes. By steadily capturing these tenant companies' needs, we will maintain and improve the profitability of existing buildings and continue on the trajectory of long-term profit growth through operation of new buildings to be completed with gross floor area of over 700,000 tsubo.

The "La Tour" luxury rental apartment series has grown to a scale of 4,000 units and has been well-accepted for its hospitality and service. We will continue to improve our brand value and further extend our strong performance.

In the hotel and event hall business, we are striving to restore the profitability to the pre-COVID-19 levels during fiscal 2023, and aiming for further growth in the next medium-term management plan and beyond with the contribution to earnings from the full-scale operation of Haneda Airport Garden including flagship hotels with a total of 1,700 guestrooms, directly connected to Haneda Airport, which fully opened in January, 2023.

Sales

For condominium sales with firm demand under the low interest rate environment, more than 90% of the 3,000 units planned to be delivered in the next fiscal year (fiscal 2023) were already sold, and sales activities including those for fiscal 2024 and beyond are making steady progress as planned.

Although rising construction costs continuously needs to be addressed, we have already secured the necessary amount of land for condominiums to be delivered by the next medium-term management plan amid continuing intensified competition for land acquisition. We will maintain our policy of focusing on profit with controlling the pace of sales, rather than chasing volume of units or sales, and will also maintain the high level of profit scale that we have achieved in previous medium-term management plans.

We are promoting development that contributes to decarbonization with the adoption of the "ZEH-M Oriented" high environmental performance as the standard specifications for all condominiums we design from the Ninth Management Plan.

Construction

In Japan, 90% of the over 50.0 million existing houses do not meet the latest energy-saving standards, posing a major social challenge for decarbonization. Our "Shinchiku Sokkurisan" remodeling business has been well received for its "high-insulation remodeling" that achieves high energy-saving performance, and the percentage of orders for "high-insulation remodeling" for full remodeling has reached 30% at present (target of 20% for the Ninth Management Plan).

In custom homes, we have launched the sale of "SUMICA" with the latest ZEH (Zero Energy House) specifications as standard; it combines the solar power generation service "SUMIFU × ENEKARI," which offers the benefits of solar power generation services for peace of mind at zero initial cost simply with a fixed monthly service fee, and high thermal insulation specifications, and the ZEH ratio is now increasing to 80% (target of 60% for the Ninth Management Plan).

In both businesses, we aim to achieve record-high profit by increasing orders through appealing to customers for high disaster prevention and environmental performance, while focusing on cost control, minimizing the impact of material price fluctuations.

Brokerage

Sumitomo Fudosan Real Estate Sales Co., Ltd. is one of the industry-leading company mainly with transactions of existing housings, focusing on spreading its "STEP" brand, while operating Mansion Plaza brokerage offices which exclusively handle high-class condominiums, and launching STEP Auctions, an industry-new service that offers fairer and more transparent transactions under the principle of "Customer First." This new service has been well-accepted by many sellers.

Following the discontinuation of distributing insert flyers, in January 2023, we completely terminated our operations of sending direct mail (DM), which had been sent to customers using registered information, from the perspective of protecting personal information. We, instead, have shifted our focus to an advertising strategy utilizing the Internet, promoting efficient advertisement by paperless operations and digital transformation (DX).

While the supply of new housing is on the decline, the existing housing market, which is being revitalized by an increase in high- quality stock, is expected to grow, and we will strive to expand our market share by strengthening Group collaboration with our other businesses such as custom homes and remodeling, and condominiums that we have sold in the past, as well as further pursuing customer-oriented services.

Sumitomo Realty & Development Co., Ltd.

12

A Message from the Management The Sumitomo Realty Group's

Business Strategy

The Sumitomo Realty Group's

Value Creation

Business Review

ESG management	The Sumitomo Realty Group's
financial Data /	Consolidated
Company Information	Financial and Non-

The Sumitomo Realty Group's Business Strategy

Basic Management Strategy and Medium- to Long-term Outlook for "Sustainable Growth"

Impact of rising interest rates on earnings is expected to be negligible

Preparing for the recent global inflation and the accompanying rise in interest rates is an important management issue for the Company as a real estate company with large up-front investments.

Our financing policy is to manage our finances conservatively, focusing on long-term debt with 10-year maturities, maintaining a fixed interest rate ratio of over 80%, and diversifying refinance dates (interest-bearing debt as of the end of fiscal 2022 was approximately ¥3.9 trillion, with the long-term ratio at 95% and the fixed interest rate ratio at 86%).

In addition, the shareholders' equity ratio, which indicates financial soundness, has improved every year, almost doubling to 28% from 15% 10 years ago, and the debt rating, which indicates creditworthiness of bonds and other financial assets, has improved to the AA zone rated by both Japan Credit Rating Agency, Ltd. (JCR) and Rating and Investment Information, Inc. (R&I), and we have earned a high evaluation for our financial stability as well as our profitability.

Conservative finance focusing on long-term debt	Ensuring financial soundness and stability
Fixed interest rate ratio		At the end of fiscal 2022		Shareholders'		Debt ratings
of interest-bearing debt			equity ratio		by JCR and R&I
	Long-term debt ratio : 95%
Over 80%			28%		AA-
	Fixed interest rate ratio : 86%

Trend of debt ratings

AA

AA-

A+

						A Message from
		Profit Distribution Policy
						the
Policy to return the fruits of sustainable growth to employees first, implementing a total of 7% wage	Management
increase in fiscal 2022
The Company puts into practice the corporate slogan "Integrity and Innovation" and is aiming for employee-first management to return
the fruits of sustainable growth to employees first, based on the ideas that employees are the source of enhancing the corporate value
through sustainable growth.
We have a highly diverse workforce, with career hires accounting for 90% of our workforce, and we have implemented a salary
increase that is commensurate with the growth of individual employees, a unique personnel system in Japan that evaluates solely on		The
ability (job responsibilities) and performance in each of the various job categories.
			Sumitomo
In fiscal 2022, in addition to the salary increase above, a special allowance of ¥100,000 was paid uniformly to all 10,000 Group	Business
employees as a daily living support, taking into consideration the rapid rise in prices, especially for utilities. Furthermore, the lump-sum
payment of ¥100,000 at the end of the fiscal year in conjunction with the renewal of record profit was given to all Group employees,
Strategy	Realty Group's
instead of only to those at Sumitomo Realty & Development as in the past, to share the joy of the good performance with the entire
Group. As a result, including two lump-sum payments for a total of ¥2.3 billion, the wage increase rate for the fiscal year was 7%. We
will continue to make generous human capital investments in our employees along with returns to shareholders in line with sustainable
growth.
	Salary increase	Salary increase based on ability and perfor-		Fiscal 2022
	mance			The
			Wage

A

JCR

Lump-sumpayment 1: A special allowance as a daily living support	increase	Sumitomo Value
Special allowance	(uniformly ¥100,000)	rate

A-

R&I

BBB+

BBB

BBB-

BB+

'99

'01

'03

'05

'07

'09

'11

'13

'15

'17

'19

'21

'23

The table below shows the estimated earnings impact of higher interest rates in case the entire amount scheduled for repayment (redemption) over the next five years was refinanced. The annual refinancing amount is about 10% of total interest-bearing debt, and if the market interest rates were to rise by 0.5%, the increase in interest payments would be about ¥2.0 billion each year. This is only a 0.5% impact on current leasing revenue of ¥400.0 billion, and it is well within the range that can be absorbed by future improvements in revenues from existing buildings and new buildings to be completed in the future. In addition, when interest rates rise, in general, the economy is likely to be in a moderate inflationary trend, in which case the probability of an upturn in the economy and an improvement in the Company's earnings environment is also high.

Only a 0.5% impact on current leasing revenue of ¥400.0 billion = Well within the range of absorption

Rising interest rates simulation (next 5 years)			(Billion yen)
(Years ending March 31)	2024	2025	2026	2027	2028
Repayment amount (refinancing)	294.1	383.8	345.9	440.6	302.4

If interest rates remain at current levels...

Interest amount	18.0	18.0	18.0	18.5	19.5
YoY change		-	-	+0.5	+1.0

If interest rates increase by 0.5%...

Interest amount	18.0	19.0	21.0	23.0	26.0
YoY change		+1.0	+2.0	+2.0	+3.0

• Long-termdebt and bonds
• Interest-bearingdebt as ¥3.9 trillion as of March 31, 2023

The Company will continue its conservative financing policy with a higher ratio of fixed interest rates, for long-term debt, and will strive to minimize the impact of rising interest rates in the future.

The target of "ordinary profit exceeding ¥300.0 billion in the next medium-term management plan" incorporates the assumption of a 0.5% rise in market interest rates.

13 Integrated Report 2023

		7%	Realty Group's Creation
Lump-sum payment 2:	Lump-sum payment at the end of the fiscal
* Including two lump-
year in conjunction with the renewal of
	sum payments for a
Renewing record profit record profit (uniformly ¥100,000)
total of ¥2.3 billion

Double the dividend within 7 years to ¥100 per share, and continue sustainable dividend increase in line with profit growth

The Company's basic policy of profit distribution is to ensure prioritization of investment in leasing office assets in order to enhance the
long-term earnings base and to strive for "sustainable dividend increase" in line with profit growth.	Business
Plan. However, in November 2022, we increased the pace of "sustainable dividend increase in line with profit growth" from ¥5 to ¥7 per
Based on this idea, we initially set forth the continuation of the "annual dividend increase of ¥5 per share" in the Ninth Management
share per year, based on the recognition that, in addition to steady progress in business performance, the future outlook for business	Review
performance has been brighter with the normalization in the economic activities, considering the coexistence with COVID-19.
In fiscal 2023, we plan to "increase the dividend for the 10th consecutive year" to ¥59 per share, and thereafter we will continue the
"annual dividend increase of ¥7 per share" and raise it to "¥100 per share per year" within seven years, doubling the current ¥52. The
Company will reward shareholders for their long-term support as we aim to increase our corporate value through sustainable growth.

Sustainable dividend increase in line with profit growth

Profit	March		Within 7 years	Dividends		The
(Billion yen)	2023	Double		¥100	(Yen)	ESGmanagement	SumitomoRealtyGroup's
¥52
350						dividend		100
300										90
250										75

200

59

60

52

100

Profit

Continue to

30

financialData/

Consolidated

45

increase

150

dividend by

45

Dividends

30

¥7 per year

20

Company

Financial

50

6

15

Dividend increased for 10 consecutive terms

Information

andNon-

0

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

'22

'23

'24

'25

'26

'27

'28

'29

'30

'31

'32

'33

0

(Years ended/ending March 31)

Sumitomo Realty & Development Co., Ltd.

14

The Sumitomo Realty Group's Business Strategy

Basic Management Strategy and Medium- to Long-term Outlook for "Sustainable Growth"

Investments for Growth

Steady progress in investment in leasing office assets with gross floor area of over 700,000 tsubo in central Tokyo, mainly comprising redevelopment

Governance	A Message from
	the
Ensuring diversity of the Board of Directors - Outside Directors accounting for one-third of the Board,	Management
and appointing one female Director

The Company has adopted a policy of continuing to invest in leasing office assets in central Tokyo, which has underpinned sustainable growth to date, and has been promoting development plans with gross floor area of over 700,000 tsubo (approx. 2,300,000 m2) expected to complete in and after the "Ninth Management Plan." The Company aims to achieve profitability from these projects focusing on large- scale redevelopment over the next three medium-term management plans, and additional investments will be approximately ¥2 trillion (of which ¥700.0 billion is for the three years of the Ninth Management Plan).

In fiscal 2022, two large-scale redevelopment projects, Sumitomo Fudosan Tokyo Mita Garden Tower and Sumitomo Fudosan Shinjuku First Tower were completed. We will continue to steadily promote redevelopment projects underway in Ikebukuro, Yaesu, Tsukiji, Roppongi, and other locations in central Tokyo, and we will strive to further expand our earnings base and increase corporate value by completing and putting these projects into operation. In terms of new properties, we maintain our policy of taking advantage of opportunities that arise and actively acquire desirable properties available (securing ¥300.0 billion for investments in new projects for the three years of Ninth Management Plan).

Operating income from office building leasing business
and gross floor area for leasing		Additional
(Billion yen)																																							(Thousands of tsubo)
																																					700,000
220																																															tsubo				2,200
200																																													and more				2,000
																																									¥172.0 billion
180																																													1,800
																										Gross floor						(March 2024 forecast)
160																																															1,600
																								area for leasing
																												(owned)
140																											(right scale)																		1,400
120																																																								1,200
100		¥33.0 billion																																													1,000
80																																														800
60			(March 1997)																														Operating														600
																																							income from
40																																								leasing													400
20																																							business													200
0																																																						0
	'97		'00	'03		'06		'09				'12	'15				'18	'21				'24
		(Years ended/ending March 31)																												(F)

The Company has decided to make changes to its Directors and Corporate Auditors as shown in the table below due to the expiration of
the terms of office of all Directors, and it was approved at the Ordinary General Meeting of Shareholders held in June 2023.
As a result, the number of Outside Directors was increased from two to three, meeting the one-third ratio of Outside Directors
recommended in Japan's Corporate Governance Code. In addition, a total of two members, one Director and one Corporate Auditor, are
female.			The
Even under the former structure, the Board of Directors held vigorous discussions, and we believe that the Company's governance was
Business	Sumitomo
sufficiently functioning. However, we will continue to further strengthen and enhance our corporate governance and aim to increase our
corporate value.
Number of Directors		Strategy	Realty Group's
Former (As of March 31, 2023)	New (As of June 29, 2023)

Inside	7	Inside	6
Outside	2	Outside	3
(of which, female)	(0)	(of which, female)	(1)	The Sumitomo Realty
			Value Creation

Investment of ¥500.0 billion in India, aiming to increase profits by ¥30.0 billion, or 10% of domestic ordinary profit

Group's

In addition to expanding the earnings base centered on the										.
leasing business in central Tokyo, the Company is making					BKC				Speed	Sta
							Metro
full-fledged overseas expansion in India, with our "Tokyo	Pakistan	Delhi						High		(Planned)
	Nepal					.(Planned)
						Sta
office building leasing business" model of acquiring the						National
					Rail
development site independently, developing, leasing,		India			.
managing and owning buildings by ourselves for the long				Sta
			Metro
term.	Mumbai		Project 1	(Planned)
In July 2019, we acquired the largest office building's site in		Maharashtra							Project 2
Bandra Kurla Complex (BKC), which is a new city center of			State
Mumbai, the largest economic city of India, and in November					.
			Metro	Sta
2022, we acquired an additional site of a similar size. Together
			(Planned)
with the first acquired site, we are promoting the office		Sri Lanka
building development with gross floor area of approximately
80,000 tsubo and an investment scale of nearly ¥200.0 billion.
We have already started underground construction for the first
property, and we are aiming to complete construction of both

Number of Corporate Auditors

Former (As of March 31, 2023)

Inside	2
Outside	2
(of which, female)	(1)

	New (As of June 29, 2023)
Inside	2	Business
(of which, female)	(1)
Outside	2
		Review

	properties during the next medium-term management plan.
	The BKC is being developed as a financial center, and
	government-affiliated companies, major Indian conglomerates,
	and foreign IT companies are moving into the area. New
	stations for high-speed rail and a new metro line are scheduled
	to be built in the future, and further development as a
	business district is expected.
	Starting with these developments, we first invest
	approximately ¥500.0 billion in India, or 10% of over ¥5
	trillion of leased assets after the completion of the
	development plans with gross floor area of 700,000 tsubo in
	Japan, while taking into consideration of various property	BKC
	types and business models in addition to the long-term
	ownership of office buildings, aiming for higher investment		Project 1	Project 2
	efficiency than in Tokyo, considering overseas risk premiums
	Location	Bandra East, Mumbai, Maharashtra State
	such as interest rates and exchange rates.
	In the next medium-term management plan, we aim to	Site acquisition	July 2019	November 2022
	Acquisition value	22.38 billion INR	20.67 billion INR
	surpass ¥300.0 billion in domestic ordinary profit, and as our
	source of further growth beyond that, we aim to generate	(Yen equivalent)	(38.0 billion JPY)	(35.1 billion JPY)
	Type of ownership	Leasehold for 80 years	Leasehold for 80 years
	10% of that amount, or ¥30.0 billion, from overseas business.
	Site area	12.486 m2	11.885 m2
	* For details on our business expansion in Mumbai, India, please refer to	(approx. 3,780 tsubo)	(approx. 3,595 tsubo)
	pages 43-44.	Building scale	Gross floor area of approx.	Gross floor area of approx.
		130,000 m2	130,000 m2
			(approx. 40,000 tsubo)	(approx. 40,000 tsubo)
		Building use	Office building for lease	Office building for lease
				*1. 1 INR = 1.7 JPY
15	Integrated Report 2023			*2. 1 tsubo ≈ 3.3 m2

List of new Directors and Corporate Auditors

ESGmanagement

The

Directors

Corporate Auditors

SumitomoRealtyGroup's

Kenichi Onodera

Director - Chairman of the

Male

Yoshifumi Nakamura

Full-time Corporate Auditor

Male

Board

Kojun Nishima

Representative Director -

Male

Toshikazu Tanaka

Full-time Corporate Auditor

Male

President

Masato Kobayashi

Representative Director -

Male

Takashi Sakai

Outside Corporate Auditor

Outside

Independent

Male

Deputy President

Yoshiyuki Odai

Representative Director -

Male

Naoko Hasegawa

Outside Corporate Auditor

Outside

Independent

Female

Deputy President

financialData/

Consolidated

Hiroshi Kato

Director - Senior Managing

Male

Executive Officer

Hisatoshi Katayama

Director - Senior Managing

Male

Executive Officer

Company

Financial

Yozo Izuhara

Outside Director

Outside

Independent

Male

Nobumasa Kemori

Outside Director

Outside

Independent

Male

Information

and Non-

Chiyono Terada

Outside Director

Outside

Independent

Female

Sumitomo Realty & Development Co., Ltd.

16

The Sumitomo Realty Group's Business Strategy

Basic Management Strategy and Medium- to Long-term Outlook for "Sustainable Growth"

Considering abolishing advance warning takeover defense measures against malicious takeover action

Since its introduction in 2007, the Company's advance warning takeover defense measures have been renewed every three years through a resolution of the General Meeting of Shareholders and have been continued.

The current policy was approved at the General Meeting of Shareholders in June 2022. Subsequently, the Ministry of Economy, Trade and Industry established the "Fair Acquisition Study Group" to discuss a review of the guidelines for takeovers, and the Financial Services Agency also started discussions on reviewing the tender offer system in March 2023, and discussions on ensuring the fairness and transparency of acquisition procedures are progressing rapidly.

These discussions are greatly welcomed because they are expected to possibly resolve the "problems in the legal system" that necessitate our takeover defense measures, such as being taken all of a sudden by a malicious acquirer who rapidly purchases shares in the market, and the takeover being consummated without sufficient time for consideration or an appropriate decision-making process at the General Meeting of Shareholders, posing a risk of damage to corporate value and the interests of other shareholders.

In light of future trends in these system revisions, we will consider abolishing the advance warning takeover defense measures that we have introduced, at the Board of Directors and other meetings.

"Problems in the legal system" that necessitate our takeover defense measures

e.g. Being taken all of a sudden by a malicious acquirerwho rapidly purchases shares in the market, and the takeover being consummated without sufficient time for consideration or an appropriate decision-makingprocess at the General Meeting of Shareholders, posing a risk of damageto corporate value and the interests of other shareholders

Progress in "review of corporate takeover rules," expected to possibly resolve the problems

Discussions on ensuring the fairness and transparency of acquisition procedures

METI: Reviewing the guidelines for takeovers at the "Fair Acquisition Study Group"

FSA : Reviewing the tender offer system and considering to tighten the large shareholding reporting rule

Progress in reducing strategic shareholdings	A Message
from
From the perspective of building and strengthening stable and long-standing relationships with business partners such as tenant
the
companies and financial institutions, the Company may acquire and hold shares of such business partners when it deems that such
Management
reducing the ratio of the book value (purchase price) of listed shareholdings each year to 10% or less of shareholders' equity by fiscal
acquisition and holding will contribute to stabilizing and enhancing corporate value.
With regard to the reduction of strategic shareholdings, in the Ninth Management Plan, the Company has set a numerical target of
2030 at the latest, and it imposes a certain level of discipline on the balance of shareholdings. In fiscal 2022, we sold six issues, with
book value of approximately ¥7.0 billion in total, whose significance of our holdings had declined. As a result, the book value of listed
shares decreased to ¥269.0 billion (down ¥3.0 billion from the preceding fiscal year), and the ratio to shareholders' equity declined two

percentage points to 16.6% (18.4% at the end of the preceding fiscal year).

The

Business

Sumitomo

The Company will continue to examine the significance of the strategic holding of shares individually, and it will proceed to sell shares

that are deemed to have lost their significance to continue holding as subject to reduction.

Strategy

RealtyGroup's

Book value of listed shares and shareholders' equity

6th

7th

8th

March 31,

Fiscal 2030

(March 31, 2016)

(March 31, 2019)

(March 31, 2022)

2023 Results

Target

190.3

271.9

Book value of shares

(Billion yen)

255.5

269.0

Shareholders' equity

(Billion yen)

821.0

1,099.3

1,479.2

1,618.9

The

ValueCreation

SumitomoRealtyGroup's

Ratio

(%)

23.2

23.2

18.4

16.6

10% or less

Capital Efficiency

Achieved ROE of 9.4%, well above the cost of capital

In fiscal 2022, ROE (Return on Equity) was 9.4%, achieving high capital efficiency on par with the preceding year. Meanwhile, the
shareholders' equity ratio has improved every year with increasing financial stability, and R&I upgraded our credit rating to AA- in	Business
February.
The Company will continue to maintain ROE that exceeds the cost of capital, while balancing financial stability with enhanced	Review
profitability.
Changes in ROE

If the problems are solved in light of trends in these system revisions,

abolish the "advance warning takeover defense measures"

(Years ended March 31)	2019	2020	2021	2022	2023
ROE	(%)	11.2	11.3	10.1	9.6	9.4
Profit	(Billion yen)	130.1	141.0	141.4	150.5	161.9
Shareholders' equity	(Billion yen)	1,202.1	1,295.0	1,503.0	1,634.0	1,799.4
Shareholders' equity ratio	(%)	23.4	24.4	26.5	28.1	28.3
R&I rating		A	A+	A+	A+	AA-

• Profitability
• Stability

ESG management	The Sumitomo Realty Group's
financial Data /	Consolidated
Company Information	Financial and Non-

17 Integrated Report 2023

Sumitomo Realty & Development Co., Ltd.

18